Fitch Ratings expects to assign a 'AAA(EXP)sf' rating to the class A-R notes of OHA Loan Funding 2015-1 Ltd./Inc. The Rating Outlook is expected to be Stable.
Fitch does not expect to rate the class B-R, C-R, or D-R.
OHA Loan Funding 2015-1 Ltd./Inc. expects to issue refinancing obligations as class A-R, B-R, C-R and D-R notes (collectively, the refinancing notes) and use the net proceeds to redeem the existing class A, B-1, B-2, C and D notes at par (plus accrued interest). The remaining class E, F and subordinated notes are not expected to be refinanced.
In conjunction with the issuance of refinancing notes, two supplemental indentures are contemplated. The first supplemental indenture will permit the waiver of certain refinancing provisions upon 100% consent of the each class of notes note being refinanced, thereby permitting the expected terms of the December 2016 refinancing. The second supplemental indenture will incorporate terms of the refinanced notes and amend certain features to "Volckerize" the transaction. Other material changes are included in the accompanying Presale Report, available on www.fitchratings.com or by clicking on the link.
KEY RATING DRIVERS
Sufficient Credit Enhancement: Credit enhancement (CE) of 36.0% for class A-R notes, in addition to excess spread, is sufficient to protect against portfolio default and recovery rate projections in a 'AAAsf' stress scenario. The degree of CE available to class A-R notes is in line with the average 'AAAsf' CE of recent CLO issuances.
'B' Asset Quality: The average credit quality of the indicative portfolio is approximately 'B', which is comparable to recent CLOs. Issuers rated in the 'B' rating category denote a highly speculative credit quality; however, in Fitch's opinion, class A-R notes are unlikely to be affected by the foreseeable level of defaults. Class A-R notes are projected to be able to withstand default rates of up to 62.7%.
Strong Recovery Expectations: The indicative portfolio consists of 97.4% first lien senior secured loans. Approximately 88.8% of the indicative portfolio has either strong recovery prospects or a Fitch-assigned recovery rating of 'RR2' or higher, resulting in a base case recovery assumption of 78.3%. In determining the class A-R notes' ratings, Fitch stressed the indicative portfolio by assuming a higher portfolio concentration of assets with lower recovery prospects and further reduced recovery assumptions for higher rating stresses, resulting in a 38.7% recovery rate assumption in Fitch's 'AAAsf' scenario.
Fitch evaluated the notes' sensitivity to the potential variability of key model assumptions including decreases in recovery rates and increases in default rates or correlation. Fitch expects the class A-R notes to remain investment grade even under the most extreme sensitivity scenarios. Results under these sensitivity scenarios ranged between 'A+sf' and 'AAAsf' for the class A-R notes.
VARIATIONS FROM CRITERIA
The indenture contains variations from Fitch's 'Counterparty Criteria for Structured Finance and Covered Bonds' because the issuer is permitted to invest in eligible investments that do not have a Fitch rating, and the issuer may establish segregated trust accounts or enter into hedge agreements with an institution that does not have a Fitch rating. While the transaction documents permit this, Fitch expects eligible investments to carry Fitch ratings of 'A' or 'F1' (maturities up to 30 days), or 'AA-' or 'F1+' (maturities 30 to 365 days), and the rating of any issuer account bank or hedge counterparty is expected to be at least 'A' or 'F1' by Fitch. Fitch will monitor the transaction's eligible investments, future hedge agreements and the rating of The Bank of New York Mellon Trust Company, National Association (as the account bank), and may take rating action if their ratings no longer satisfy criteria or if they are replaced by another investment or institution that does not satisfy criteria.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under "Related Research" below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions,' dated May 31, 2016.
Fitch has assigned the following rating:
--$416,000,000 class A-R notes 'AAA(EXP)sf'; Outlook Stable.
Class A notes will be marked 'paid-in-full' (PIF) on the closing date of the refinanced notes.
Additional information is available at www.fitchratings.com.
Sources of Information:
The sources of information used to assess these ratings were the arranger (J.P. Morgan Securities LLC) and the public domain.
Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)
Criteria for Interest Rate Stresses in Structured Finance Transactions and Covered Bonds (pub. 26 Oct 2016)
Global Rating Criteria for CLOs and Corporate CDOs (pub. 09 Sep 2016)
Global Structured Finance Rating Criteria (pub. 27 Jun 2016)
OHA Loan Funding 2015-1 Ltd./Inc. - Appendix
Dodd-Frank Rating Information Disclosure Form
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